Things Every Parent Should Know Before Setting Up A Trust Fund

Things every parent should know before setting up a trust fund

Imagine working for decades so that one day you could pass your assets on to your children or grandchildren. Wouldn’t you like to know that when the day comes, they won’t lose it all on bad investments or to a gold-digging spouse—or simply because they have no idea how to properly manage large sums of money?

Whether you’re bestowing assets during your lifetime or leaving them as an inheritance, creating trusts with well-thought-out terms can ensure your money lands in the right hands and isn’t squandered.

When you write a will and leave money outright to your heirs … once it’s inherited, there are no controls on how that money is being handled, and you don’t know what will happen. Using trusts helps protect your heirs against future catastrophes—[such as] bankruptcies, money-hungry predators disguised as friends, family looking for loans or business bailouts and other financial challenges—and can also provide for certain special needs of your children or grandchildren.

Many trusts make multiple pay-outs over time, the hope being that spacing out distributions will prevent the beneficiary from blowing it all in one shot. In many cases, his clients use age-based pay-outs, in which a percentage of assets is distributed at various ages. The child doesn’t get it all at once. If they are irresponsible with money, hopefully they can manage.

Is your name indicative of your future success?

Is your name indicative of your future success?

Distribution options

Pay-outs at 25, 30 and 35 years of age have historically been common, though experts warn that in this day and age, 25 is too young to properly manage large sums of money.

Weiss also has clients who schedule periodic pay-outs after the benefactor dies, so beneficiaries may get a distribution, for example, every five years following the death.

While distribution schedules are common, others opt for more elaborate terms to allow for more contingencies.

For example, Weinberg has a client couple who planned to leave money outright to their children. However, after problems arose with one child, they created a trust that states certain conditions that must be met in order for the child to receive the inheritance.